With constantly changing variables in what will be the fourth and not final Greek bailout, it has been relatively difficult to pinpoint just what the "fulcrum security" is in the ongoing restructuring that is not really a cramdown bankruptcy but kinda, sorta is, and more importantly where the money will come from. A big issue that Europe has discovered with a two and a half year delay (pointed out here first, but anyone with capacity for rational thought could have grasped it at the time), is that Greece has hit the inflection point where without more, and substantial, debt forgiveness it is unviable entity, and will certainly not hike the Troika's hard line target of 120% debt/GDP by 2020. In other words, Greece can no longer layer more debt to pay down debt.

The problem is that both Germany and the ECB have decreed they will not agree to Official Sector impairments (recall the private sector was already crammed down with original Greek debt collapsing into New GGBs at about 20 cents on the dollar, which in turn then proceed to trade immediately down to 20 cents of Fresh Start par, implying there is absolutely no value in this most subordinate debt), and as Germany made clear last night, it refuses to permit a largely meaningless cut in interest rates of Greek bilateral loans from 150 bps to a token 25 bps, an adjustment it classified as "illegal."

So what is the latest state of play that has the biggest support from all parties?

It appears that the plan which is now back in play, is one which Greece had previously nixed, namely a partial Greek bond buyback of the private bonds at a discount to par: with numbers currently rumored anywhere between 25 cents and 50 cents on the euro.

On the surface this appears a reasonable deal, however there is a reason why Greece killed this proposal one month ago. As Kathimerini reported back then:

The Finance Ministry is ditching banks’ plan for a bond swap that would have eased their recapitalization requirements.

According to sources, Minister Yannis Stournaras has rejected the proposal that local banks presented to him, suggesting that this would be a move that would benefit bank shareholders disproportionately. Ministry sources added that such a move would generate accusations about favorable treatment of banks in comparison with other holders of Greek bonds.

That is also the view by the troika – i.e. the representatives of Greece’s creditors – who had earlier rejected a similar plan.

This is correct: because the only beneficiaries would be those financial players who either bought the bonds in the open market, or held on to the original "pre-petition" bonds.

But even if Greece agrees with this proposal, there is a question of where Greece will get the money for this distressed debt buyback? After all Greece is completely broke, and any new cash would have to be in the form of loans, as not even the most nebulous interpretation of the Maastricht treaty would allow an equity investment, or to use the proper nomenclature, "a fiscal investment" into Greece.

An alternative proposal involves offering €10bn of extra loans to Athens from the European Financial Stability Fund, the eurozone’s temporary bailout pot. The option is seen as a leading contender for a compromise deal.

This extra lending would support a more ambitious scheme to purchase Greek bonds held by private investors, part of a package of debt relief measures to bring down Athen’s debt to significantly below 120 per cent of economic output by 2022.

Sanctioning a new €10bn of bailout loans would pose a considerable political challenge to several countries and require the backing of restless parliaments in Germany, Finland and the Netherlands.

In other words, the money is now supposed to come from the EFSF, funded realistically by Europe's AAA governments, all of which have said not one more penny will go to Greece. However, the EFSF already has prefunded and committed capital so it is a convenient loophole.

The problem will arise when the parliaments of said AAA countries are asked to explain to their people why they all have to pay billions in order to repay between €20 and €40 billion (assuming a 50 or 25 cent repurchase price) of Greek debt, just so Greece has a theoretical chance of hitting 120% debt/GDP by 2020, a number which has virtually no chance of being hit when one accounts for the the denominator: the collapsing Greek GDP which last quarter tumbled at a 7% rate.

But the kicker is when one traces the use of funds. Because what is will happening is a payment not to Greece, obviously, but to its creditors: entities which for the most part are hedge funds, and which have bought up GGB2s in the mid teen levels as recently as 4 months ago (recall Dan Loeb's major position in Greek bonds).

So to simplify the flow of funds:

Source of Funds: EFSF, using European cash primarily originating at places such as Germany, Finland and Netherlands

Use of Funds: Hedge funds holders, with a cost basis in the 10-20 cent range.

Summary: European governments, already struggling with day to day cash procurement and finding new and inventive ways of keeping the ponzi going day to day, will pay... Hedge Funds and their billionaire PMs.

And what do they get in return:

In part to address the inevitable political concerns, officials are
drawing up options to back the new loans with collateral from Greece’s
privatisation programme, which aims to raise €50bn.

So do not fret dear AAA-rated (if not for long) European countries: the money you will spend to generate between 100% and 400% returns for creditor hedge fund in a few brief months, will not be lost - in exchange you will have "collateral" from the Greek privatization program. Which may or may not work: perhaps if Dan Loeb, Elliott and the other creditors who are about to make a huge profit by flipping Greek bonds will "privatize" Greek real estate, and the funds will go back to the European countries who made the payment to the hedge funds a possibility in the first place.

The only real loser here? The Greek people, who will have just sold off up to €50 billion in national assets (and this is uncertain - there may very well not be any buyers for Greek "assets"). The same Greek people who will get not one penny from any of the convoluted fund flows explained above.

And now you know what the current state of the latest Greek bailout process is.

"The problem will arise when the parliaments of said AAA countries are asked to explain to their people why they all have to pay billions in order to repay between €20 and €40 billion (assuming a 50 or 25 cent repurchase price) of Greek debt, just so Greece has a theoretical chance of hitting 120% debt/GDP by 2020, a number which has virtually no chance of being hit when one accounts for the the denominator: the collapsing Greek GDP which last quarter tumbled at a 7% rate."

The solution presented here is elegant if convoluted, The AAA countries have enough money to keep the Greeks supplied with ouzo but they are forbidden from doing so by some pesky rules. They can't directly fund a member country's debt. The hedge funds are providing a well compensated way around the short sighted rules. It's very similar to a plan outlined to me sometime ago by a Nigerian oil executive who wanted to compensate me for using my account to bypass some irrational foreign exchange rules. Sadly my wife wouldn't let me participate in the deal. :(

"When it becomes clear that public revenues are paying for the bets of hedge funds and allowing massive profits, the gloves are coming off."

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Right. Believe it when I see it. In the meantime, those paper-pushers continue to buy up prime real estate etc. with the paper you toil for. The political history is irrelevant as there is no longer a mechanism left in Europe for a violent revolution.

Europe is not America - yet. The propagandists have worked hard to try and eliminate the free thought over the years but the rise of nationalists in all countries shows once again that blood is thicker than water.

Don't quite understand your comment about America. Again, I'll believe it when I see it. Wake me when the guillotines roll in europe and are actually put to use. Shit, if you are in the wrong neighborhood America, you will get killed over your sneakers. In addition to the same "moneychanger" problem, America has another set of problems altogether.

There appears to be no mechanisms to prevent the parasite Hedge Funds and their billionaire PMs, from sucking more and more blood from their host, until the host dies. This article is yet again another indication that the runaway debt insanity situation, which was always inherent in the basic structure of the privatized money-as-debt system, can have no other final out come that its own destruction. Each of the players attempts to maximize their own benefit. There is apparently nothing in that structure to prevent themselves from doing that too much, for too long. Greece continues to be the hostage victim that the kidnappers kill first, to prove they are serious. However, anyone paying attention already knows they are deadly serious, and they shall continue to play their game of chicken, until there is some crazy collision, or real rush off a cliff, to crash.

There was no collateral, but the threat of destruction. The whole system is based on runaway frauds, backed by threats, and that system has nothing sane to fall back upon, except final destruction. The reality is money backed by murder, which is the ONLY actual collateral in these systems of making more and more money out of nothing, as debts stacked on top of debts. The whole thing is simply debt slavery, based on the covert history of death controls, which is automatically driving itself through to debt insanity. It is the old fashioned, "Do what I say, or I will kill you!" That threat was channelled through sovereign states, which were covertly taken over by the best organized criminals, that we called "private banks," directed by privatized central banks.

Thus, the sovereign debt crises are basically debt slavery, being driven through to debt insanity, which means that money backed by murder drives its death controls through to some unprecedented kind of social insanity, which matches the unprecedented wide-spread driving of collective debt slavery to become collective debt insanity. This is runaway robbery, evolving to become systemic fraud, because the fundamental systems were all built as organized robbery, by the best organized gangs of criminals, who were able to take control of the governments of sovereign states, by them being better organized gangs of covert criminals, able to gradually and systematically take control over the puppet politicians, who superficially appeared to be controlling those sovereign states.

Since there was no real collateral other than threats, we can only wait to see what happens when this apparently impossible bluff is finally called. I have no idea how that will break through, or break down, and I do not believe anyone else does, since we have no experience of what happens when a global system of electronic fiat money frauds, backed by atomic weapons, finally tops itself out ...

Since the BASIC TRUTH about these situations will apparently never be allowed to be sufficiently expressed in public debates, more radical truth about these situations can be nothing but an outside spectator, watching to see what the runaway triumphant legalized lies and fringe frauds, that ARE controlling society, end up doing.

The PSI Buyback is NOT the latest state of play. The Troika report draft says very clearly ALL measures listed within are necessary for Greece to have any chance at sustainability, and the PSI buyback is perhaps the most minor of measures.

The measures must be

1) OSI writedown (absolutely refused by Dutch, Germans and IMF) and this is the MOST IMPORTANT measure. Note that any write down is debt forgiveness and ALL other indebted countries will demand the same.

2) Reduction of OSI interest rate on whatever is not written down (similarly refused by same parties).

3) Extension of time for Greece to meet targets (refused by the IMF, for several reasons, not the least of which is a delay must be funded).

4) A writedown of the very small amount of PSI debt still remaining.

This article is talking only about item 4 and it is the least significant. The draft report makes clear that only if ALL measures are enacted is there any chance of Greece achieving sustainability. So forget #4. The other 3 determine the decision.

The problem is that both Germany and the ECB have decreed they will not agree to Official Sector impairments (recall the private sector was already crammed down with original Greek debt collapsing into New GGBs at about 20 cents on the dollar, which in turn then proceed to trade immediately down to 20 cents of Fresh Start par, implying there is absolutely no value in this most subordinate debt), and as Germany made clear last night, it refuses to permit a largely meaningless cut in interest rates of Greek bilateral loans from 150 bps to a token 25 bps, an adjustment it classified as "illegal."

Maybe, just maybe, this addresses "measures" #1 and #2.

#3 refers to the funding related to "measure" #4, which, as the title (hopefully you read that) says is the key issue: and by key issue we mean sources and uses of funds.

Because there is no transaction without money changing hands.

The rest of the article, as you correctly pointed out, discusses precisely this point.

Oh we also fail to see how €113 billion, or 30% of GDP, in PSI debt, which also happens to be the 5th subordinated debt tranche, is "very small."

The fact that Germany and the ECB refuse to do OSI writedown doesn't make those writedowns any less required.

Perhaps we should address this 113B Euros of PSI debt. The correct number, post PSI and post interest rate adjustment, seems to be 46.5B, with about 15B of that issued not by Greece, but by the EFSF (it was the required sweetener). I think the 113B number comes from the pre PSI amounts and were NPV of the reduced interest rate cash flow vs pre PSI rates.

Per this:

The sweetener is particularly powerful in this regard in that it is up front cash. The EFSF is not a Greek entity.

The numbers were tremendously obfuscated post PSI, and we must remember some English law paper WAS redeemed (which reduces debt outstanding). Overall, the number seemed to be 46.5 B outstanding at 10-30 year paper.

It's just not significant in comparison to the Official Sector amounts in play. The article is not addressing what matters -- in that ALL measures as described in the report have to occur. What matters is the ECB and Germany's refusal either change or this doesn't work.

Do the math. Default is the only option, but this would hurt the banks, central bankers, and hedge funds.

Therefore, more un-payable debt will be piled onto the back of the Greek people; as is the case in every indebted Western nation including the U.S.

The global Kleptoligarchy will not allow free markets, fair wages, referendums, freedom, nor sustainability - as their survival depends upon parasitizing any real capital or assets left;, engorging a small minority on the blood of the majority.

But even if Greece agrees with this proposal, there is a question of where Greece will get the money for this distressed debt buyback? After all Greece is completely broke, and any new cash would have to be in the form of loans,

Jeebus, the Greek government is analagous to an unemployed Florida couple that are $150k in debt and just shifting balances from one zero introductory APR offer to the next, while stiffing the older unsecured creditors. It is an absolute fucking pity what the world has become. When do the tanks start rolling in?

Makes sense. All the winners in this sea of shit system (where it rains piss and hails pus) are the statist policy makers, plugged in hedge fund managers, and bankers. jonnie horzine is the poster boy for this shit sandwich system that the rest of us are forced to eat.

Meanwhile, expect the market to rally next week when the black friday stats come in as the broke ass shit sandwich eaters trample themselves to death as they scramble for that $700 dollar 70" flat screen tv.

Nothing personal Tyler. This is all important and relative information, but I am tired of reading about Greece. Just once I would like to see the headline Greece Defaults! and nothing more needs to be said.

If u are being funny this does not apply to you, if you are being sincere it does :

Stop being such a delusionist. Life is what it is. Reality always commands. Don't underetsimate the Oligarchs. Greece is today the theatre of the tragic in first world, its people collateral victims like GAza of third world for other reasons.

Some people here on ZH feel they can pretend to be disconnected with reality. They can't.

THe role of ZH is to inform us on reality, not to comfort us in our delusional theories fed on our own prejudices.

If u know what the ZH role is then u know why Greece has NOT been allowed to default since over 2 years. Greece is the classic case of debt enslavement of nation that gets ripped off by the banks. This is so criminal anybody who says I'm sick of this does not understand what is up ahead. Greece is the template for rest of first world. So how can you run away from Greek reality?

The western concept of AAA is a myth (if not an outright lie). There are simply too many promises, and there are too few resources to fulfill those promises. Looks good on paper though - for now - sort of - whatever that's worth..

What is taking so long is that those other countries were stupid enough to loan Greece the money...and they do not want to lose THEIR money...so thjey are trying to find a way to pay themselves back...but there is no way...

define "default". When you make the rules, it is very easy to change definitions. Imagine all the banks holding CDS paper coming together and wiping it all out. I say that this is exactly what will happen once those few successful families, that have come before us, take possession of all the physical wealth on the planet.

Good Point! LAst winter we saw Greece default multiple xs and the organization defining when a default had occurred which was made up of banks that had written the swaps merely redifined the term default!

Only the banks get out alive. They have had 2years to fob off their worthless sovereign paper on the taxpayers of the EU by forcing the EU to by their crap paper. It will all go to zero, the euro will print and the debt holders(people of Europe) will eat sawdust.